Treasury Wine Estates, Australia’s biggest listed wine company, posted a 5.3% growth in annual profits in fiscal year 2022 but its flagship wine Penfolds’ overall revenue suffered a 9% drop due to China’s crippling tariffs.
TWE’s growth was lifted by strong sales in the US led by what the company describes as “standout growth” from Beringer, Stags’ Leap, Matua and the popular 19 Crimes, as well as its premium wine portfolio.
For the year ended on June 20, 2022, the Australian wine giant posted 3% increase in EBITS to AU$523.7 million, and its net profit after tax reached AU$263.2 million, up by 5.3% compared with a year ago.
Throughout the year, its sales revenue declined 3.6% to AU$2.47 billion, reflecting divestment of the US commercial portfolio and the decline in shipments to Mainland China and reduced commercial volumes in the UK and Australia, the company says, but it adds that the loss was “partly offset by strong growth in the premium and luxury portfolios”.
This prompted Credit Suisse to upgrade TWE’s 2023 financial outlook. “FY23 management guidance called for ‘strong’ EBITs growth which we are now interpreting to mean at least 15% EBITs growth,” it says.
Penfolds and China
The group’s flagship brand Penfolds, on the other suffered a 9.1% decline in revenue as Australia-made Penfolds are increasingly hard to reach the Chinese market due to close to 180% punitive tariffs Chinese government imposed on TWE, once the biggest Australian wine exporter to the country.
Its net sales revenue outside of mainland China grew a stunning 45%, and in Asia, growth was astonishing. Penfolds sales skyrocketed 106% in Asia during the period, according to the company. However, they failed to offset loss in China market which previously account for 30% of TWE’s annual earnings.
Regaining its market in China nonetheless still remains a priority for the company.
Since the announcement of more than 200% anti-dumping tariff on Australian wine in 2020, TWE has outsourced its Rawson’s Retreat to be bottled in South Africa and Chile for the Chinese market.
It also started bottling Penfolds Max’s in China’s coastal Shandong province for the local market, and this year the company confirmed it’s also launching its made-in-China Penfolds sourced from China’s premier wine region Ningxia.
Its California wine collection and its recently unveiled French wine collection are also unmistakably earmarked for the Chinese market. TWE’s decision to acquire Chateau Lanessan will double the existing vineyard footprint in Bordeaux, boosting its multi-country of origin to supply Chinese market.
The volume of the French collection is limited (10,000 cases), but the group’s CEO Tim Ford said the collection is targeted almost exclusively at China, according to a Bloomberg report.
“We’ve got a few cases in other markets around the world just to satisfy some of our more private clients,” he said. “But absolutely — designed for China, built for China and made for China.”
Looking ahead, the company says it remains focused on delivering sustainable top line growth and high single digit average earnings growth over the long term.